ACC 601 Managerial Accounting Group Case 2 (100 points) .docx

ACC 601 Managerial Accounting Group Case 2 (100 points)
Instructions:
1. As a group, complete the following activities in good form.
Use excel or
word only. Provide all supporting calculations to show how you
arrived at
your numbers
2. Add only the names of group members who participated in
the completion
of this assignment.
3. Submit only one copy of your completed work via Moodle.
Do not send it to

me by email.
4. Due: No later than the last day of Module 4. Please note that
your professor
has the right to change the due date of this assignment.
Part A: Fixed and Variable Cost
Stuart Manufacturing produces metal picture frames. The
company's income statements for the last two years are given
below:
Units sold...................................................
Sales........................................................... Cost of goods
sold ..................................... Gross margin
............................................. Selling and administrative
expense ........... Net operating income ................................
Last year 50,000 $800,000 550,000 250,000 150,000 $100,000
This year 70,000 $1,120,000 710,000 410,000 190,000 $
220,000

The company has no beginning or ending inventories.
Required:
Estimate the company's total variable cost per unit and its total
fixed costs per year. (Remember that this is a manufacturing
firm.)
Compute the company's contribution margin for this year.
Part B: Cost-Volume-Profit Analysis
Belli-Pitt, Inc, produces a single product. The results of the
company's operations for a typical month are summarized in
contribution format as follows:
Sales................................... Variable expenses..............
Contribution margin .......... Fixed expenses .................. Net
operating income ........
$540,000 360,000 180,000 120,000

$ 60,000
The company produced and sold 120,000 kilograms of product
during the month. There were no beginning or ending
inventories.
Required:
Given the present situation, compute
The break-even sales in kilograms.
The break-even sales in dollars.
The sales in kilograms that would be required to produce net
operating income of
$90,000.
The margin of safety in dollars.
An important part of processing is performed by a machine that
is currently being leased for $20,000 per month. Belli-Pitt has
been offered an arrangement whereby it would pay $0.10
royalty per kilogram processed by the machine rather than the
monthly lease.

Should the company choose the lease or the royalty plan?
Under the royalty plan compute break-even point in kilograms.
Under the royalty plan compute break-even point in dollars.
Under the royalty plan determine the sales in kilograms that
would be required to
produce net operating income of $90,000.
Part C: Relevant Cost/Special Order
Gottshall Inc. makes a range of products. The company's
predetermined overhead rate is $19 per direct labor-hour, which
was calculated using the following budgeted data:
Variable manufacturing overhead ....... Fixed manufacturing
overhead ............ Direct labor-hours................................
$225,000 $630,000 45,000

Component P0 is used in one of the company’s products. The
unit cost of the component according to the company’s cost
accounting system is determined as follows:
Direct materials ......................................... Direct
labor................................................ Manufacturing overhead
applied............... Unit product cost .......................................
$21.00 40.80 32.30
$94.10
An outside supplier has offered to supply component P0 for $78
each. The outside supplier is known for quality and reliability.
Assume that direct labor is a variable cost, variable
manufacturing overhead is really driven by direct labor-hours,
and total fixed manufacturing overhead would not be affected
by this decision. Gottshall chronically has idle capacity.
Required:
Is the offer from the outside supplier financially attractive?
Why?
Part D: Relevant Cost/Make or Buy Decision
Part U67 is used in one of Broce Corporation's products. The

company's Accounting Department reports the following costs
of producing the 7,000 units of the part that are needed every
year.
Direct materials.......................................... Direct labor
................................................ Variable overhead
...................................... Supervisor’s
salary..................................... Depreciation of special
equipment ............ Allocated general overhead........................
Per Unit $8.70 $2.70 $3.30 $1.90 $1.80 $5.50
An outside supplier has offered to make the part and sell it to
the company for $21.40 each. If this offer is accepted, the
supervisor's salary and all of the variable costs, including direct
labor, can be avoided. The special equipment used to make the
part was purchased many years ago and has no salvage value or
other use. The allocated general overhead represents fixed costs
of the entire company. If the outside supplier's offer were
accepted, only $6,000 of these allocated general overhead costs
would be avoided.
Required:
Prepare a report that shows the effect on the company's total net
operating income of buying part U67 from the supplier rather
than continuing to make it inside the company.
Which alternative should the company choose?

Part E: Relevant Cost/Sell or Process Further
Farrugia Corporation produces two intermediate products, A and
B, from a common input. Intermediate product A can be further
processed into end product X. Intermediate product B can be
further processed into end product Y. The common input is
purchased in batches that cost $36 each and the cost of
processing a batch to produce intermediate products A and B is
$15. Intermediate product A can be sold as is for $21 or
processed further for $14 to make end product X that is sold for
$32. Intermediate product B can be sold as is for $44 or
processed further for $28 to make end product Y that is sold for
$64.
Required:
Assuming that no other costs are involved in processing
potatoes or in selling products, how much money does the
company make from processing one batch of the common input
into the end products X and Y? Show your work!
Should each of the intermediate products, A and B, be sold as is
or processed further into an end product? Explain.
Part F: Relevant Cost/Dropping a Product
The management of Woznick Corporation has been concerned

for some time with the financial performance of its product
V86O and has considered discontinuing it on several occasions.
Data from the company's accounting system appear below:
Sales ................................................................ Variable
expenses............................................ Fixed manufacturing
expenses ........................ Fixed selling and administrative
expenses ......
$150,000 $72,000 $50,000 $33,000
In the company's accounting system all fixed expenses of the
company are fully allocated to products. Further investigation
has revealed that $30,000 of the fixed manufacturing expenses
and $13,000 of the fixed selling and administrative expenses are
avoidable if product V86O is discontinued.
A. According to the company's accounting system, what is the
net operating income earned by product V86O?
B. What would be the effect on the company's overall net
operating income if product V86O were dropped?

ACC 601 Managerial Accounting Group Case 2 (100 points) .docx

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ACC 601 Managerial Accounting Group Case 2 (100 points) .docx